Housing Market Trends January 2023 | Residential Snapshot

Last Updated on January 3, 2023 by Luke Feldbrugge

Welcome to the Housing Market Trends January 2023 monthly update from Homes for Heroes. Since it’s the beginning of the year, you can probably guess that it’s Prediction Time. Experts love prediction time because…well, they just do. It gives them stuff to talk about when they try to extrapolate the future from what we saw in this last year. And frankly, real estate professionals saw a lot last year.

After the high prices and bidding wars that typified the recent years of the real estate world, last year we saw the brakes applied in a number of ways. Mortgage rates shot up, sales plummeted, inflation threatened to tank the economy, the supply of homes increased and house prices in many of the expensive markets decreased. All the indicators pointed to real estate trends that looked a lot like the housing market we had experienced before 2019. The old normal is the new normal.

Mortgage Rates: Unprecedented

At the beginning of 2022, nobody was predicting the rise in mortgage interest rates. How could we? Experts started tracking mortgage interest rates 50 years ago. Last year, the percent increase from 3.2% to 7.0% was the most extreme in recorded history. Early predictions said it was going to level off in the mid 5% range, but it didn’t.

The Fed was battling serious inflation for the first time in decades, and its tool for managing it has always been shifting interest rates. And shift they did, with a series of increases in the 10-Year Treasury Note, quarter after quarter. They were still at it at the end of the year. So the housing market trends for January might be mortgage rate increases in our collective future, though they came down a bit in December.

We as an industry are holding our collective breaths and hoping we see some rate relief in 2023. Higher mortgage rates hurt both sides in the real estate equation: both home buyers and home sellers get rightfully spooked when they go up as fast as they did last year.

Housing Market Trends for January: The Spread

Since it’s close to the end of the football season, let’s talk about the spread. In sports betting, bookies set a spread to even up the odds. Why are we talking about spread, a conversation that seemingly should take place in the back room of a restaurant with lots of smoke and fast talking bookies?

Real estate mortgage rates also have a spread, and it’s not a small consideration when we look at current rates. Here’s how it works.

The Federal Reserve increases the interest rates on the 10-Year Treasury Note. The 30-year fixed-rate mortgage has always been tied to this key indicator, so when the Fed raises rates, mortgage rates go up too. The trouble is the spread. Typically mortgage rates are a bit higher than the 10-Year Treasury, thus making them higher. When we say “a bit,” the spread is usually about 1.7%, meaning if you add 1.7 to the 10-Year Note, that should be the current mortgage rate.

But it isn’t.

Right now, the 10-Year Note is about 3.5% but the mortgage rates in recent months are close to 7%, so the spread is a lot more than you would expect. In fact, instead of 1.7% spread, we are currently looking at 2.9%. Why is the spread so wide? The experts say that market volatility is one reason. The bottom line is that mortgage interest spread has significant impact for potential buyers and what they pay in terms of interest rates, initially and over the life of your loan.

Bambi versus Sharks

As the upcoming year reveals itself, we hope you will take care when you read headlines about the world of real estate. We have seen a lot of headlines this past year that were crafted to make you click through to the article but completely misrepresented reality.

homeowners lost trillions equity since may home prices drop cnbc tweet reporting previous year housing market trends missing valuable context

These headlines completely ignore context and all the factors that contribute to statistics. They want you to jump to the conclusion that the real estate market is crashing. And they want you to read more. They don’t want you to understand the context.

black knight drop tappable equity before hitting max 80 percent combined ltv trillions 400 million above 2021 shows 17 year housing market trend bar graph

Tappable equity is still very healthy and, in fact, above last year. A great example of context came from the book Made to Stick (Heath and Heath, 2007). Shark attacks always make the news, but they are very, very rare. The truth is that you are much more likely to be killed by a deer (via car collision) than a shark. In fact, Bambi in a given year kills about 300 people and sharks typically kill zero, so Bambi is 300 times more likely to kill you than a shark.

Fear is great for crafting headlines, but the facts are much more important, especially when making important decisions about buying, selling or refinancing a home.

Don’t Look for a Crash

We are all very sensitive to a housing crash – ever since the 2008-2009 Great Recession. With lots of negatives on the horizon (interest rates, inflation, recession), we naturally look for evidence that another crash is around the corner.

The housing marketing trends for January and the foreseeable future, if referencing the proper indicators, do not indicate a crash. First we look at delinquencies. They are currently at their lowest point since they began measuring them in 1979. Foreclosures are up, but still near record lows.

NY Fed foreclosures up near record lows number consumers with new foreclosures

Anyone predicting a crash in the foreseeable future, therefore, is not looking at the right indicators.

Prediction Time: Housing Market Trends January

Last year’s historic mortgage increases make it very hard to predict what’s going to happen next year in the real estate industry. If you are keeping an eye on the markets, concentrate on inflation. If inflation pressure continues, then we may see even higher interest rates and home price reductions.

Let’s look at sales for single-family homes. In 2022, the number of homes we sold was about 5.8 million. That’s quite a decrease over the previous year.

Census NAR 1999 to october 2022 total home sales bar graph

And predictions are we will sell 5.1 million homes in 2023. If you are a real estate professional, it’s probably a good time to shape your expectations for next year. Three things to remember:

  1. We are still seeing buyer demand, but it’s not as high as it was.
  2. The inventory of homes is higher, but the number of new listings is not robust.
  3. Construction of new homes is slowing.

Maybe hoping that prospective buyers are going to “jump” back into the market is the wrong way to approach it. After all, a home purchase is not an impulse buy (nor should it be). It’s a good idea to approach the decision with consideration and education and preparation. If the old normal is coming back, then we need to slow down the buying process and do the work that’s necessary to help people make the right decisions. It’s a decision they will be living with, literally, for many years. Then, when rates come down again, they will be ready.

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We publish our Housing Market Trends every month. If this is helpful, check us at the beginning of every month.

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